199. Can I welcome David Gibson and Stuart Ingleson
from the Association of Colleges to the proceedings. You will
know very well the process we are going through in looking at
the Individual Learning Accounts and I wonder, David and Stuart,
if you would like very briefly to introduce yourselves.

(Mr Gibson) Yes. Thank you, Chairman.
I am Chief Executive of the Association of Colleges, which I think
Members know about. We have now 99 per cent of colleges in membership.
Stuart is Principal of Preston College. Preston College was one
of the pilots under the FEFC, a large college, with 41,500 students,
1,500 staff and £30 million budget. On the ILAs they had
nearly 5,000 enrolments and estimate that the loss of the withdrawal
of the ILAs has cost the college approximately a quarter of a
million pounds because they decided to honour the commitment to
individual students. That is, at the end of the day, the effect
on the college.

200. Can I push you a little bit, Mr Gibson.
You say "lost a quarter of a million". How do you lose
a quarter of a million? I mean, what is the process? You hired
staff? You made classrooms available? You bought more computers?
I mean, how do you lose a quarter of a million pounds on teaching
that you have not provided yet.
(Mr Gibson) What I am saying is that the college did
provide the teaching. When the ILAs were withdrawn, the college
ceased to get that income but nevertheless provided the learning
opportunities for the students. I am sure Stuart can go into more
detail if you wish him to, Chairman.

201. Can we have a little more detail on this
lost money?

(Mr Ingleson) Yes, certainly, Chairman.
The college budget is drawn up on the basis that we will continue
to recruit at the same level that we did last year and therefore
we had a negative on our income stream as a result of the Government
decision in December to the tune of just over £260,000. We
chose to honour our marketing and the commitments we had made
to our students. The programmes that we have offered on which
ILAs have been used take up seven sides of A4, predominantly on
IT short programmes but covering all aspects of the college curriculum,
so it was not possible for us to close classes without impacting
on large numbers of other students that we have in the institution.

202. Where are you going to get the money from?
(Mr Ingleson) Ducking and weaving elsewhere in the
college budget.

203. I hope your accountants are listening to
"ducking and weaving"!
(Mr Gibson) It is different from fiddling, Chairman!
Honestly.
(Mr Ingleson) I think the 120 days of audit we suffer
a year would pick up any irregularities, Chairman.

Chairman: Well said. I think that is sufficient.

Mr Chaytor: Touche«.

Chairman

204. Your plea in mitigation is all right. Let
us kick off on ILAs. Why do think the Government has pulled the
plug on ILAs? David Gibson, you are known to be pretty street-wise
in these things. Why do you think the ILAs have ended up in the
way they have?
(Mr Gibson) Can I perhaps ignore the first comment.
The adjectives, Chairman, I am sure you will explain to me afterwards.

205. I hope, Mr Gibson, you saw that as a compliment.
(Mr Gibson) That is OK, then; I was just checking.
Seriously, I think what it demonstrated quite clearly was that
there is a massive amount of interest in the public in learning.
What it did was to make a way forward for individuals to be able
to pursue their learning requirements. We talk about widening
participation, we talk about social inclusion, and we believe
that it demonstrated that if we get the funding and the arrangements
rightand I am not saying they were right in this case,
for obvious reasonsthen the demand is there. We talk about
encouraging women returners: it did that. We talk about people
wanting to re-skill: it did that. We talk about people who we
believe are not interested in learningthere is no family
tradition and you hear people talking in those termsand
yet people came forward when they had what they saw as the right
opportunity. I think what we are most anxious to do is to retain
the whole spirit of the concept, but obviously do it in a way
that is not open to abuse.

206. You have not answered my question, which
was: Why do you think the Government had to pull the plug out?
(Mr Gibson) I have heard various people giving evidence
to you, Chairman, and we are told, are we not, that there were
various meetings in November and October of last year and that
the demand was such that there was a major overspend? I believe
that to be accurate. Whether or not it was the overspend or it
was the way that the overspend was achieved (ie, by non-legitimate
means) I am not in a position to give you a proper answer.
(Mr Ingleson) Forgive me, Chairman, if there is the
sound of slightly hollow laughter to the answer to that question.
The people who have worked in this sector since incorporation
have been here twice before already. The FEFC administered a scheme
called the Demand-Led Element Funding, which some colleagues may
remember, which was almost identical in principle and concept
to the Individual Learning Account. That was stopped when it exceeded
any budget estimates that had been made for it. The FEFC had to
engage in a very humbling retraction in mid-yearit left
a lot of colleges in some difficulty and a lot of students promised
activity that they were never able to pick up. We have had a similar
experience in franchising. I know that some members of your committee
have a particular view about that. I actually believe that it
is a very important part of the portfolio for colleges like Preston,
both in dealing with members of its community and in dealing with
its employers, but, again, we have similar issues around that
and the numbers were at a very, very high level and there were
budget considerations. The ILAs have been extremely successful.
It is clear that you cannot live with a completely uncapped budget
in terms of delivering a project of this size.

Chairman: That is very interesting.

Paul Holmes

207. Can we develop that a little bit because
the Government ministers we have talked to have really nailed
their colours to the mast and said they closed it down because
of fraud. We have pressed them repeatedly on that. Some people
are a bit sceptical about that because only one person has been
convicted so far and a very small number have been arrested so
far. You seem to be clearly leading down the other angle that
perhaps it really was capped because of overspend rather than
fraud. Is that a fair assessment of what you have just said?
(Mr Ingleson) I think I would agree with that, yes.

208. Therefore, by doing it in that way and
doing it so quickly, they left a lot of people in the lurch. We
have heard from private training providers how that happened and
in your evidence you have given us examples of different ways
in which colleges have suffered because of the sudden pulling
of the plug, and, as you say, it totals up to about a quarter
of a million pound. Obviously people will be very angry if it
turns out that it is not fraud at all but overspend in the end
that has led to all this. In terms of the huge financial loss
that the colleges have suffered and private providers have suffered,
what are your views on the arguments being made that there should
be compensation for that lost income, for that lost investment?
(Mr Ingleson) Could I answer that in a slightly different
way, if you will forgive me. People who have worked in the FE
sector since incorporation have become quite used to Government
money coming and going in a quite erratic fashion. In that sense,
compensation, I think, is not something that we have considered
seriously. I think the issue for us is, of course, that if I have
a £300,000 hole in my budget at the year end I have demonstrated
yet again that we are not competent to manage our own budget.
The challenge for us is to make sure that we balance all the income
streams, of which there are many, and make sure that we carry
out our activities in a way which does not cost the public purse
at the end of the year. We have treated ILAs in exactly that way.
We chose to honour the commitment to the students and that means
that we have to use our best resources in all sorts of other ways
to make sure that we balance our books at the year end. So we
have not actively considered the issue of compensation and I do
not quite know how you would do that. There can be no guarantees
that we would have enrolled the students that we expected to.
(Mr Gibson) We did a survey and surveyed 105 colleges
about the effect. Our estimate from that is that from those 105
colleges there would be an overall loss of something like £2.5
millionand I do not see anything wrong in saying that where
that has happened, then some form of compensation should be very
seriously considered. What are you doing? You are providing, as
Stuart has explained, the best you can for the students, but it
is coming from somewhere else. It would seem to me quite legitimate
to say: The colleges did this in good faith, the money was withdrawn
and therefore some form of compensation would be quite legitimate.
(Mr Ingleson) Chairman, I do believe that in larger
institutions you have economies of scale and you have greater
flexibility. Before I had the privilege to be appointed to Preston,
I was principal of a much smaller college in the north-east of
England, and in smaller institutions you have no margins for movement.
I was talking to colleagues from the private training providers
before we came in here and they are really strapped. Proportionately
the impact on them has been far greater than it has on the way
in which, in this particular case, this college has worked. I
think some of the smaller colleges would have the same kind of
difficulties that we have heard about and which, I think, would
merit serious consideration for compensation. I am left still
with the issue of how you guarantee that you would have enrolled
all those students that you have budgeted for.

209. Because you are a large institution with
different sorts of financing, because you are used to the Government
pulling the plug at short notice, you are able to ride it out
and make your losses elsewhere, because you partly anticipate
this sort of thing happening. Looking ahead in terms of replacing
the ILAs with an improved system, what words of advice have you
got for the small learning providers who came in expecting the
Government to keep their word and got their fingers burnt? How
do we get them back into this when the new scheme is set up?
(Mr Ingleson) My understanding is that the individual
providers have no form of contractual relationship with the Government
over this. The decision to place the financial resource in the
hands of the individual meant that the relationship is with the
individual provider, and that is certainly my understanding of
our relationship with our individual students. I think that the
way forward has to lie in some sort of accredited provider system,
because the issues that I think have exercised us greatly have
been around the issue of quality. I think there will be some difficulties
for some small private providers in complying with the kind of
quality assurance framework to which colleges and, indeed, increasingly
private providers who take LSC money are subjected. I do not know
whether any Members have seen the application form for organisations
that wish to be in receipt of LSC funding, but it is a daunting
document.

Jeff Ennis

210. You have already indicated, Mr Ingleson,
that your college is a big tertiary college (very similar to Barnsley
Technical College, in the area that I represent) so it has been
able to ride out the storm to some extent, as it were. Do we know
what proportion of FE colleges have not been able to ride out
the storm and are suffering quite severe financial detriment?
(Mr Gibson) Of the 105 colleges that I mentioned earlier
we surveyed, 84 of those indicated that they would make some financial
losses.

211. Will they receive compensation from the
Government?
(Mr Gibson) They have not, to my knowledge, sought
that at the moment because I think the messages that have come
out have been fairly clear in the other direction. I believe that
they should be entitled to do so, yes. That is my personal belief.

Mr Pollard

212. I would like to pursue with Mr Ingleson,
if I may, this thing about losing money and assessing students.
Each year you have to assess what your student population is likely
to be, so this is not a new decision that you would have to take.
There must be an element of risk all the time that, you know,
the feng shui course might not be filled up and you would have
to cancel it halfway through, but you have taken on staff to accommodate
that course.
(Mr Ingleson) Indeed.

213. Is there slack built into your system generally
to accommodate that or not? If not, was this a complete surprise
to you: Whoosh? I think you said earlier on that this had happened
before with FEFC and one or two of the other things, and you said,
"I smile wryly"though I am not sure those were
your exact words. "Hollow laugh" that was it. Can you
take us through that a bit?
(Mr Ingleson) Yes, of course. The funding mechanism
to which we operate at the moment is so complex, it demands such
an audit trail, that almost inevitably at the year end we find
holes in that, and we will be penalised for that financially so
we have to aim to over-recruit. If we do over-recruit, in the
past we have received not a penny. So Preston last year achieved
about 107 per cent of target; that is over £1 million of
unfunded activity. If we had been a few students short, we would
have lost money. For over-achieving, at the moment funding provides
nothingwell, it may this year, but we wait to hear that.
The ILAs were quite a significant part of our projections of our
student numbers based on performance in 2000 and 2001. Of course
the numbers fluctuate in all our areas and we will seek to recover
that by a mixture of reduction of costs in some areas and the
generation of additional income in other areas, either from commercial
activity or from fee income or from more students.

214. Is the ILA considered to be a riskier investment
to you than the feng shui or whatever it might be, so that you
are taking on almost an unknown quantity? Does that make sense
to you?
(Mr Ingleson) I need to come at that a slightly different
way, I think, Chairman. Preston has a large team of staff in a
number of different parts of the institution whose task is to
work and engage with students, offer them the best impartial advice
and guidance we can give them, and place them on a course which
makes sense in terms of their need. What the ILA did was take
away the risk for many of those people.

215. Transferred the risk to the college?
(Mr Ingleson) No. One of the issues you have discussed
in your previous evidence has been the extent to which this has
brought people back into learning who otherwise would not have
been there. Chairman, if you would just indulge me a moment, I
thought the Committee might like to hear brief pen portraits of
the students we have been able to work with who otherwise, I think,
would not have been there. I know there has been some concern
of the Committee that people already with qualifications have
been back on this. To some extent I think that is inevitable.
If you get people back on the first rung of the ladder and you
encourage them and they want to go on, if they have only got there
because they have had that financial support and the lack of risk
then they are going to go on on that same basis. A women who enrolled
at one of our outreach centres in a small market town, a 50-year
old working mother with no qualifications whatsoever, did an introductory
IT course and then progressed through onto other IT practice.
On the basis of that, she applied for and was appointed to a head
receptionist post in a major legal firm. That was specifically
job-related progression which she simply otherwise would not have
been able to access. A man who worked as a cleaner in a local
factory and a supermarket in the evenings, lacking in confidence,
left school at 15 with no qualifications, on receipt of his certificate
commented, "I am so proud of myself for gaining the certificate
for the computer driving licence. The only other certificate I
have had is my birth certificate." Another man, again with
no formal qualifications, heard about ILAs through his union representativeand
I know you have heard something of the trade unions in thiswho
we briefed. We have meetings for trade union representatives in
some of our local employers, the message went through the system
to this individual, he came on an introductory course, completed
an intermediate programme and has then gone on to higher education.
He would not have started the programme without the ILAs being
there. The people we have predominantly brought in through this
scheme would not have invested £150 of their own money in
a programme which they may not complete. The figures that we have
on the students who have come through the system on the ILA basis
are on the sheet you have been provided with. They look quite
reasonable: 84 per cent completion and 73 per cent achievement
rate. That is a lot lower than you would normally expect for short
programmes. An analysis of students in the college who were not
in receipt of ILAs but on the same courses, gives us much, much
higher figures: a 98 per cent retention rate and a 97 per cent
achievement rate. That demonstrates for us what we would have
expected, that we have worked with a group of students who would
not normally have been there and have found it harder to complete,
even with the support that we have been able to provide for them.
I have absolutely no doubt that this has brought us into contact
with students who otherwise would not have been there. It does
not answer directly your question about the fluctuations and the
variability, but we chose to retain the potentially 2,500 to 3,000
students we would have lost if we had not decided to honour our
promises for people in receipt of ILAs.

216. I still cannot get over whether you think
it is a riskier investment for the college or for colleges generally
to assume ILA students rather than the normal process that you
would get.
(Mr Ingleson) I think for the future that is a debate
and a decision that we have not yet taken. We are beginning the
process of setting next year's budget over the next few weeks.
We will have to look very hard at the question of whether or not
we are able to continue the short term remedial action we have
taken this year as we move into next year's budget. It is quite
possible, I think, unless we get some steer about the mark 2 ILA,
that we will downgrade our estimates of our student numbers in
these areas. I do not think we have a choice in that.

Jeff Ennis

217. On this line of questioning, in terms of
trying to reach the most difficult studentsand I represent
quite a deprived area where the outreach centres from the local
colleges are very important in terms of first footing (as we call
it), getting people into adult education. How important a recruitment
tool has the ILAs been in those very deprived areas in terms of
the first footing element?
(Mr Ingleson) Very important.

218. Would it rank as the top initiative, would
you say?
(Mr Ingleson) Not necessarily, no. Remember that the
people who have received ILAs are not in a sense the most disadvantaged.
People who are in receipt of a range of benefits would have tuition
fees waived for them anyway and be fully funded by the FEFC, as
was, and now the Learning Skills Council. For people that are
in low paid, predominantly part-time jobs, particularly women,
they have been very important. In that sense, operating alongside
the fee remission scheme that the college and the LSE can talk
about to you, they have been a very valuable tool at that level
which is just above people in receipt of benefit.

Mr Baron

219. A very general question, but could you
try to be as specific as possible: What harm do you think this
episode has done with regards to both colleges and students generally?
I know the colleges are expected to meet the loss of expected
income in order to honour commitments to students, or most are
anyway, so obviously there is a financial loss, but the implications
of any subsequent programme initiative, what are the implications
of that?
(Mr Ingleson) My answer might not be quite what you
are fishing for, so please come back at me if I am not answering
in the way you wish.